Why The Major Labels Continually Fail To Adapt: They Can't Take The Risk

from the too-much-risk dept

The site Hypebot is running an excellent interview with Lee Parsons, the CEO of Ditto Music, where he succinctly explains why new music distribution strategies will win (and are already winning), as well as why the major labels have failed so miserably to adapt. Here's a snippet:

Record companies cannot look into problems from a fresh, artist based angle. Problems are often solved but not in the way they were intended...

Shawn Fanning created Napster firstly for his own purpose. The new music models embrace as much technology and revolution as they can contain in a chaotic attempt to find a new and better path. Revolutionaries are prepared to make mistakes on the way; labels do not have this luxury. Many battles win a war, likewise through constant chaotic growth, development will come. Developing a new model for a major label is fuelled with risk so it is more likely they will continue to look for ways of containing technological advancement rather than embracing it as a new way of income....

The labels by being at war with the revolutionaries set themselves up as "The Bad Guy." Major label fat cats aren't going to convince a 9 yr old kid that sharing a song is wrong just because it affects their jobs.

People LOVE free music. Free music is always going to win.

By continuing with their argument instead of reaching out to new technology they push themselves even further behind in public opinion.

Unfortunately it isn't as simple as the "home taping will kill music" argument they thought it might be because the advancement of technology has overtaken even the revolutionaries' expectations. For a new generation of people music is now free. You CAN'T fight that.

You can't fight it, but you can embrace it. Unfortunately, as Parsons notes, the major labels, for the most part, are unable to embrace it because to them it still looks too risky. The problem for them, however, is that others are embracing it, and are willing to take the risks, and by the time "what works" is totally figured out, it'll likely be way too late for the majors to make the jump. Anyway, the whole interview is worth reading. Go check it out (and the link above is only for part I -- which has now been continued with part II).

M&A saves the day

The nice thing for the incumbents is that they still have big fat bank accounts and the so-called revolutionaries are often startups w/investors looking for exits. In this scenario, it just seems like it will be a matter of time before the labels start gobbling up the revolutionaries if indeed those figure out business models that make sense.

Even in a scenario where the revenues may no longer be what they used to, given the choice of death or adapting, I'm sure that some, though not all, labels will pursue a survival strategy and buy up some startups. LastFM's acquisition by CBS comes to mind in this respect. More should follow.

Permanent risk

I think the issue is the established players can't take risks they can't back out of. Taking a risk that definitively kills your current business model is the gutsiest risk of all! A self-destructive/disruptive business model!

Atrophy

Entrepreneurial thinking atrophies when a business runs in a cartel environment. You only have to worry about competition from fellow cartel members who don't have any more incentive to think outside the box than you do.

If the cartel itself is threatened, the only defense it can think of involves killing off the outsiders before they get too strong to actually threaten the cartel.

Mike often talks about how the recording industry should have embraced Napster instead of destroying it and having several even worse things take its place. Perhaps they should have embraced it, but they could not. They could only think about preserving the cartel and the way they always did business. They could not even conceive of a business model that operated in a way that did not involve selling high priced media pressed into cheap plastic and promoted almost entirely by free radio plays.

Re: Permanent risk

It's like having a knife lodged in your leg. If you pull it out to staunch the bleeding with a tourniquet, you're committed to the new measure. Since you can't put the knife back in, you must use the tourniquet or you'll bleed to death. What the labels are trying to do is pretend there is no knife in their leg while they slowly bleed to death.

Re: Atrophy

The radio play isn't just free for the labels, they get a cut of the revenue the radio broadcasters take in. They have a sweet and easy deal that promised to keep throwing money at them. Now that dream is shattered by reality and their trying to fall back to sleep with an alarm screaming in their ear.

what they should do

If they can't change themselves (they are dinosaurs), they should be buying up good looking startups. They should have lots of offshoots to spread the risk. They should be lucky if one of their startups begins cannibalizing their core sales (and their competitors) - that means success.

They have such a huge sense of revenue entitlement, that they attempt to squash any startup rather than investing in it.

I dismiss any music based tech ideas I have because I know I'll get sued out of existence (or they will demand all equity/profit or huge upfront fees). Compare this with a startup that may compete with Google. Google may attempt to buy it up (eg. youtube). Now that, is an incentive to create.

The recording and broadcasting industry are like panda and koala bears. They have been around too long and are over evolved. They are too specialized to adapt and extinction looms. Broadcasters can't put content online, because they have resold the rights to many times. eg. they can't broadcast online, because someone in a foreign country may see it and company xyz owns that country's broadcast rights. The internet doesn't work that way. The internet is global.

How about we care again about quality

Record companies need to look back and start to actually care about what they release. I'm not even talking artist wise. I am saying how awful most modern day recordings are. They have no dynamic range, highly compressed to get the "loudest" sound possible. All bass and treble with no midrange. I'll happily "buy" music that is quality, I will even listen to artist or genres I am not to fond of if I am in acoustical heaven.

They should just die, but some people let them grow beyond what was healthy and now they think it is important to "save" them, it is not, those companies and individuals have passed their utility and are no more necessary in the market.

Do we care?

Technology and it's advancement will win. Period. If you are not adapting or changing then you deserve to be over with. Everything that is happening now in the music industry,fair or unfair, is deserved. They ripped people off, Fed them crap and then tried to Sue Change?

I am not saying nothing should be done but what industry hasn't had its roots shaken to the core due to changes in technology.

I'm getting woozy as to what the alternative is.

"For a new generation of people music is now free. You CAN'T fight that." is true, but probably leads to other than where you believe.

Sure, for now, there's a new generation getting along at the edges by selling "extras" of some sort, but I can't see myself getting a T-shirt from each of the hundreds of groups I've sampled, too much trouble at the least, let alone going to a concert. -- And most aren't worth supporting. -- IF the expectations of performers as to income were commensurate with *actual* value, then there'd be a chance. BUT getting "money for nothin'" inevitably leads to expectation of ridiculous incomes in the current sick society.

There's a reason for the "star" system in movies and music: the product isn't actually worth much, so the audience must be vast to really hit big. The experiments that you keep referring to stretch the already weak relation between objective worth and subjective worth of entertainment. No matter what your tastes are, only a tiny fraction of songs will appeal enough that you gladly pay *dollars* for them, and the rest aren't worth a nickel, even actually cost you *time* of auditioning.

I don't see unlimited choices remaining available (not new: the past is full of treasures), because support will diffuse and collapse. Even with "content" costs lowered by no physical products, at some point people will quit entering the field, because getting noticed will be impossible (as with "apps"), without the "star" system hyping them, and so no income.

[There should be a bit in here about micro-payments, but it's intractable.]

Sure, a *few* trendy people will finance these experiments with large enough "pay what you want" amounts to support it (while the idea is new), but does that "model" stand up to being the *only* one? Obviously not, and so I don't expect the star / studio system to go away entirely.

So I argue myself around to the view that the "fat cats" actually have a role -- just not one that I care for: they *reduce* choices until are few enough to be focused on and supported by the masses. Lady Gaga is the rule, not an exception (an old formula: sex goddess with occult kookiness, quite disturbing in large doses). How will the masses know what they like until they're told?

This "free" notion does kill itself by reducing the value of *all* music. -- And yet the current way isn't going to survive, either. -- If only there were some *reasonable* overarching societal solution, but that'll require the "new generation of people" to give up the notion of unlimited returns for limited efforts, besides to eschew money as a goal and not permit excessive incomes.

Re: I'm getting woozy as to what the alternative is.

The "star" system existed long before recordings which is one of the e reasons we still remember, hear and, in some cases, worship Litz, Handel, Beethoven, Bach and that set of romantic era composers.

That the fat cats of their era were the Duke of St Martins-in-the-fields-behind-the-hedgerow-and-the-nasty-bull or some record company fat cat makes little difference.

Now in those days the nobility and pretenders in the upper middle class swarmed to concerts that these composers played at or conducted at ridiculous prices shouldn't sound all that unfamiliar.

The records of the day were sales of sheet music and you can bet the composer and sponsor got a cut of that.

And acts have sold extras at concerts for years. I can remember being flogged tshirts and other paraphernalia at Led Zep shows in the early 70s so that's not all that new.

We're at the same place we were, culturally, when Edison recorded Mary Had A Little Lamb on a cylinder. We don't know what's coming next.

And there's always been the Lady Gaga and Madonna characters. We seem to have a fascination for powerful, successful, independent women who do whatever the hell they want to and do it well. The latter is the difference between them and the Lindsay Lohan's of the world. They control their fame and the star maker machinery where the Lohan's let it control them to the point of self destruction.

You underestimate music as an art form and what it does to and with humans. It's the only art form that takes in all parts of the brain including those areas that are part of our deepest emotions.

Rarely does reading a novel bring up an unconscious reaction like the appearance of goosebumps and shivers while a phrasing or tonal quality of a piece of music often does.

In that sense free reduces none of the value as the value of music is intrinsic. If all you look at this the price of exchanging it you're losing a lot of it's real value to humans. So, we'll continue to pay for it. As long as we judge the price to be a reasonable for the enjoyment and emotional qualities it brings us.

Just how we'll do that isn't known, at the moment. What we do seem to be discovering is the old mega label model, which isn't that old really, isn't working and won't work.

Records are NOT sheet music

I agree with most of ttfnjohn's comments, except the one about sheet music being the "records" of the olden days.

Sheet music is instructions -- nothing more, nothing less. Without a competent musician to interpret it, sheet music just sits there. It doesn't sound pretty or touch us in any of the ways actual sound can. You can't look at a score and be moved the same way.

Records are the concrete realization of sheet music. A specific performance, captured, for all time, that can be replayed at will.

There were no records in the olden days. You wanted to hear a piece of music, you'd get off your duff and go see the performance.

When it all comes crashing down, those of us who can interpret the sheet music (or better yet, play music without the "music") will be better off. Once we move past this phase of "high technology" (and we will, lest we forget Rome) - actual artistry and skill will once again be valued. Empty suits won't decide what we listen to and who the next star is. Until then, I guess we're stuck with what we've got.

What CEO is going to commit career suicide by suggesting something so radical? For every CEO who might have the balls to go that route, there are 100 who would readily step in and tell shareholders what they want to hear, that the company CAN stop piracy/free music.

unfortunately a lot of money and time will be wasted until the realization comes that the established industry will NOT willingly change and needs to die a quick death.

Re: M&A saves the day

"In this scenario, it just seems like it will be a matter of time before the labels start gobbling up the revolutionaries if indeed those figure out business models that make sense."

I have said this before, the last thing the record labels have going for them is promotion. The ability to create hype and market an artist or band. We are beginning to see more and more experiments in marketing from outside the labels. Eventually someone will pull it all together and the labels will fail because of it. How do you gobble up a business model that gives music away for promotional purposes? That the artists have all the power?

"Even in a scenario where the revenues may no longer be what they used to, given the choice of death or adapting, I'm sure that some, though not all, labels will pursue a survival strategy and buy up some startups."

The labels are already trying to do this with 360 deals. This is a trend that will only last until the promotion piece is figured out. If an artist is given the choice betweeen giving up 30% of everything to the label or 2% for promotion which do you think he will choose. Like all businesses, if efficiency creeps in, the companies or organizations that fail adapt start bleeding money and then fail.